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Slower S'pore growth forecast: Economists warn of 2023 technical recession risk if manufacturing worsens

SINGAPORE — Following the Government’s forecast of slower economic growth next year, economists are warning of a higher risk that Singapore could slide into a technical recession, especially if the slump in manufacturing worsens.

Slower S'pore growth forecast: Economists warn of 2023 technical recession risk if manufacturing worsens
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  • Economists said that there is a higher chance of Singapore going into a technical recession
  • This is especially if the slump in the manufacturing industry worsens
  • Their warning came after the Ministry of Trade and Industry said that economic growth for Singapore will slow down in 2023
  • However, economists said that the risk of a full-blown recession in 2023 remains low
  • Consumer spending is likely to dampen, with hiring slowing down in sectors such as technology, but picking up in the services and F&B sector

SINGAPORE — Following the Government’s forecast of slower economic growth next year, economists are warning of a higher risk that Singapore could slide into a technical recession, especially if the slump in manufacturing worsens.

A technical recession is when the economy shrinks for two straight quarters, in quarter-on-quarter terms. None of the economists TODAY interviewed anticipates a full-blown recession, which is more serious and often involves significant job losses and business failures.

In its quarterly economic survey released on Wednesday (Nov 23), the Ministry of Trade and Industry (MTI) said that it expects to see economic output grow by a slower 0.5 to 2.5 per cent in 2023, compared to its forecast of around 3.5 per cent growth for all of this year.

MTI said that the manufacturing sector expanded just 0.8 per cent in the quarter ended Sept 30, far weaker than the 5.6 per cent growth in the previous quarter. In quarter-on-quarter seasonally adjusted terms (which reflects momentum), factory output shrank by 3.8 per cent.

The report attributed the slower overall economic growth outlook to sharp slowdowns expected in the United States and euro zone as well as global supply disruptions as the war in Ukraine drags on.

Thus, against this backdrop, the growth of outward-oriented sectors in Singapore is expected to weaken along with the deterioration in demand for the country's exports abroad, MTI said in its report.

Economists who spoke to TODAY said that they had not revised their forecast for next year, despite the latest outlook from the Government. MTI's previous quarterly economic survey, released in August, did not offer a 2023 growth forecast.

Mr Chua Hak Bin from Maybank, said that the bank is maintaining its forecast of 1.5 per cent economic growth next year, right in the middle of MTI’s latest forecast range.

A more optimistic Mr Song Seng Wun from CIMB bank, said that his forecast remains at 2 to 3 per cent growth for next year.

He noted that government estimates tend to be more conservative to aid in its fiscal planning.

“For the Government’s budgetary standpoint, it is best to err on the side of being conservative so that if things turn out to be better, it is a bonus,” he said.


Mr Song said that there is “a  more than 50 per cent” chance for a technical recession to occur next year if the technology manufacturing sector shrinks significantly, or if other growth sectors cannot compensate for the manufacturing contraction.

Likewise, Ms Lee Ju Ye from Maybank said that based on the bank’s in-house model, the probability of a technical recession over the next year has risen to about 12 per cent as of this month after central banks around the globe further raised interest rates to counter inflation.

She said that any probability above 10 per cent is "quite a risk to watch out for".

Ms Lee also pointed to slowdown in outward-looking sectors such as trade, transport and finance as a factor that could affect Singapore’s growth next year.

She noted that these sectors account for a much larger share of the country's economy than domestic sectors such as retail and food-and-beverage (F&B) services.

However, analysts said that there is unlikely to be a full-blown recession next year given that other sectors such as aviation and tourism are recovering from the Covid-19 pandemic.

Ms Lee of Maybank said that other sectors such as F&B services and construction are still at pre-Covid levels and growing. These sectors will continue to see recovery next year as they are less affected by external headwinds, she said.

As such, even if a recession were to take place next year, it would be a “shallow” one involving “a very slight dip of 2 to 3 per cent” in annual economic growth at most.

The recession would not last for an entire year or drag down economic activity to the point where it contracts in full-year terms, Ms Lee said.

Similarly, Mr Song said that he expects the economy to “level off” after a couple of quarters of contraction and said that a full-blown recession would occur only if unexpected events emerged next year to worsen demand, such as another war.

Mr Chua of Maybank said that a recession scenario may materialise if the US Federal Reserve continues to hike interest rates aggressively to fight inflation at the expense of economic activity.

Central banks raise the cost of borrowing money to deliberately weaken economic activity in a bid to combat rising prices of good and services, which left unchecked, can wreak economic carnage.

“Singapore cannot fully decouple and a US or global recession will likely sink the Singapore economy into a recession as well,” Mr Chua said.


Given MTI’s forecast next year, economists said that consumer spending is likely to dampen, while the availability of jobs will be mixed, with hiring continuing in some sectors and slowing down in others.

Ms Selena Ling, chief economist from OCBC bank, said that in a rising interest rate and slowing growth environment, discretionary or big-ticket expenditure outlook may be pared back as businesses and consumers turn more cautious.

Ms Lee said that there would be “a mixed picture” in terms of employment. Noting that there have been recent layoffs in tech companies such as Shopee or Meta, she said that there may be a decline in hiring for the technology sector.

On the other hand, she expects hiring in other sectors such as hospitality and F&B to continue given that they still lack manpower and have not recovered from the pandemic.

Mr Chua said that the Singapore job market has been “sizzling hot” and may not necessarily be healthy for employers since it could drive up wage costs and fan inflationary pressures.

Higher wages put more money in the pockets of consumers, thus potentially aggravating inflation. At the same time, firms paying higher wages may have to pass on those higher costs to customers in the form of higher prices, known as a wages-prices spiral.

“A slowing economy will help take some steam off and reduce both price and wage pressures,” Mr Chua said.

Related topics

economy recession MTI

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